On 30 March 2016, the Italian tax authorities ("ITA") issued extensive (and long-expected) guidance on the taxation of inbound investments, in the form of LBO or otherwise (Circular n. 6 of 30 March 2016, the "Guidelines").
The Guidelines touch on a number of issues that have been heavily debated in the private equity industry in recent years and contain good and bad news. More in particular, the three areas addressed by the guidelines are:
- Deduction of funding costs;
- Tax treatment of transaction costs;
- Tax treatment of outbound flows (dividends and interest); and
- Substance requirements of foreign holding companies.